Author: Amanda Dennis

KT Insights
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Avoiding the Year End Scramble

An African proverb states, “The best way to eat an elephant in your path is to cut him up into little pieces.” Preparing for business taxes at the end of the year can seem like eating an elephant – an overwhelming task. Cutting up the work into smaller pieces, and keeping up on it throughout the year, can make the task manageable. It can also highlight business opportunities or pitfalls that might not be apparent if the accounting tasks are left to the last moment.

Which areas should be kept up to date and what are the benefits?

Deposits/Accounts Receivable

When customer payments are received, deposits should be made as soon as possible, and promptly recorded in the accounting software. Electronic payments and automatic bank feeds into the accounting system can further simplify this process. Timely invoices, accurate records, and up-to-date deposit information improves cash flow, allows the business to quickly follow-up on outstanding or missing payments, and identifies customers who are falling behind on invoices.

Payments/Accounts Payable

Vendor invoices should be entered into the accounting software promptly. If the invoice is for services provided, a W-9 should be requested from the vendor, for 1099 purposes at year end. If a large invoice is received for a piece of equipment or other asset that will be capitalized and depreciated over time, make a copy for your tax accountant. Accurate records in this area allow the business to take advantage of vendor discounts for timely payment, eliminate double payment of invoices, identify price increases early on, and recognize trends in vendor payments like large increases or decreases in frequency and/or amount. In addition, when January comes and 1099 information is due, you are prepared.

Payroll

If the business is not using either the payroll module in the accounting software, or a payroll provider that provides an import into the software, record payroll payments promptly. Keep employee address information updated. Trends in overtime and payroll costs will be easy to see when this information is up to date. When quarterly and year end reports are due, information is ready for submission.

Bank Reconciliations

If the items above are already complete, most accounting software makes this step simple. Bank reconciliations help the business identify:

  1. Old outstanding checks that should be voided or reissued.
  2. Missing deposits, which could indicate poor cash handling patterns or internal fraud.
  3. Cash flow challenges that need to be addressed.
  4. Opportunities for investment of excess cash in the bank.

Bank reconciliations should be performed by someone other than the person responsible for making deposits and payments to protect both business assets, and the staff in these positions.

Financial Statement Review

Once the other steps are done, reviewing the financial statements each month is like taking the pulse of your business. You can identify areas for expense reduction before they get out of control. You can see potential sales, investment, or growth opportunities in a timely fashion and act promptly to take advantage. Financial statements that compare the current year to the prior year’s activity can show trends and comparisons that help with short- and long-term planning.

In conclusion, as Brianna Wiest said in 101 Essays That Will Change the Way You Think, “Everything is hard, but you choose your hard.” Which hard do you want? The hard of keeping up on the accounting tasks, or the hard of doing all the accounting tasks at the end of a year? The hard of capitalizing on valuable business opportunities because you had the knowledge and information to capitalize on them, or the hard of missing them?

January 22, 2024
| Amanda Dennis
KT Insights
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Form I-9

Currently across the country, the U.S. Immigration and Customs Enforcement (ICE) is increasing I-9 audits. Would you know what to do to prepare if you received an audit notice? There are some important steps to take to ensure you have all necessary documentation on file for your employees. Form I-9 is an Employment Eligibility Verification document that all employers must have on file for each employee hired after November 6, 1986. It is up to the employer to ensure the form is completed timely and correctly.

Section 1 of the form needs to be filled out by the employee indicating personal identifying information (name, address, date of birth, etc.) and must be signed and dated by the employee.

Section 2 of the form needs to be filled out by the employer documenting which evidence of identity the employee has provided. There is a List of Acceptable Documents on the last page of Form I-9 for employers to reference to ensure they are receiving acceptable documents. It is important to realize there are 3 columns on the list (A, B and C).  To be completed accurately, you should have unexpired proof from either column A or columns B and C.  These identification documents are not required to be photocopied but if the employer chooses to do so, they must do so for all new hires and retain with the Form I-9. The employer must also sign and print their name, title, company name, and date on the form.

Lastly, Section 3 must be completed by the employer only when updating or re-verifying information such as an employee name change or rehiring within three years of the form’s original date.

Once Form I-9 has been completed, it must be retained by the employer for three years after the hire date or one year after employment ends, whichever is longer. Electronic records are an acceptable method as well.  Generally, it would be our recommendation to keep current employees forms with their employee file, and any former employees all together in a file, as an audit will not be limited to current employees.  To be prepared for an ICE audit you should review all Form I-9s you have on file for current employees and correct any errors or discrepancies. If there are any necessary corrections, the employee and employer must initial and date by the correction and white out cannot be used.If there are any missing Form I-9s, a new form must be completed and cannot be back-dated.

It is typical for ICE to request Form I-9s for current employees and terminated employees within the last year. They might also request an employee list, payroll documents, and business owner information. Failure to have properly completed I-9s can lead to significant penalties on a per form basis.  Therefore it is extremely important for employers to be completing these accurately and completely to avoid these issues.  For further information, employers can reference the USCIS Handbook for Employers located at www.uscis.gov or contact the team at Ketel Thorstenson with any questions.

September 30, 2019
| Amanda Dennis
KT Insights
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South Dakota Tourism Tax

Summer is here. Along with the blossoms come all of the different license plates in our area. Tourist season is here and what does that mean to you? Have you ever wondered about the additional tourism tax?

In addition to collecting and remitting state and city sales tax, there is an additional 1.5% tourism sales tax that is imposed for tourism promotion in South Dakota. The tax applies to any business which primarily earns monies from visitors.  There are two categories of businesses subject to this tax.

First, there are year-round payers which are the following types of businesses: hotels and lodging establishments, campgrounds, motor vehicle rentals (rented for less than 28 days), recreational equipment rentals, recreational services, spectator events, and visitor attractions.

Second, for certain taxpayers, the tourism tax applies only during certain months. These “visitor-intensive” businesses are required to collect and remit the additional 1.5% tourism tax only during the months of June, July, August, and September.  The applicable businesses are those with 50% or more of their total annual gross receipts occurring during those four months. Examples of visitor-intensive businesses include: antique shops, candy stores, rock shops, arts/crafts shops, marinas, jewelry stores, and novelty shops.

To determine if you are subject to collecting and remitting the tourism tax, first pinpoint which category your business falls under—either a year-round tourism business, or possibly a visitor intensive one.  Next, if you are not subject to the year-round tax, analyze your gross receipts from June through September. For example, cabin rentals would be subject year-round.  An antique shop would be subject only if 50% of the income occurs during June thru September. A confusing factor, a business might think they only have to collect and remit during June thru September because that is when most of their business occurs. However, if your business falls under the category of collecting year-round, looking at gross receipts for eligibility determination is not needed. Only if you are a visitor-intensive business are you required to assess your gross receipts to determine eligibility for the four month period. If you need assistance determining if you should be collecting and remitting tourism tax, contact the professionals at Ketel Thorstenson today.

May 25, 2017
| Amanda Dennis
KT Insights
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Regular Rate of Pay: Costly Errors to Employers

Amanda Dennis SUN_5915 5x7x300dpiDid you know that there is a difference between an hourly rate and regular rate of pay? The difference is not always calculated properly by software and the consequences can be costly to employers. Under the Fair Labor Standards Act (FLSA), any employer who violates unpaid overtime compensation laws may be liable for both the shortfall and liquidated damages, meaning double the expense to the employer.

When calculating overtime, the most commonly misunderstood and miscalculated variable is the regular rate of pay. Regular rate of pay includes all payments made by the employer to the employee. The regular rate of pay is determined by totaling all weekly compensation and dividing that total by the number of hours worked in that week. For example, if an employee worked 50 hours one week at $8.50 per hour and earned a $100 bonus that week, the regular rate of pay would be calculated as follows: 50 hours times $8.50/hr.=$425, $425 plus $100 bonus=$525, $525 total compensation divided by 50 total hours=$10.50. The overtime pay rate is one-half of the regular rate of pay. Therefore, the overtime pay would be calculated as follows: 10 hours (amount of hours above 40) x $5.25 ($10.50 x ½) =$52.50. Total gross income for the week would be $577.50, which is $525.00 plus overtime pay of $52.50.

Since the regular rate of pay needs to be calculated on a weekly basis, this means that an employee’s regular rate of pay can change from week to week. It is important to perform this calculation to ensure the overtime pay is correct. Examples of these types of compensation that need to be included in the regular rate of pay calculation include: shift differentials, paid travel time, on-call pay, call-back pay, waiting time, training time, and performance based bonuses and commissions.

There are some important exceptions and guidelines as to what is included in the total compensation amount when calculating the regular rate of pay. Paid vacation time does not need to be included in the calculation since the hours were not actually worked. Payment that cannot be measured by hours worked, production, or efficiency is excluded in the total compensation amount. Examples of these types of payments include gifts, holiday pay, sick pay, travel expenses, per diem expenses, and employee expense reimbursements. Any discretionary bonus that is paid is not included in the calculation, either. A bonus is defined as discretionary if there is no defined benefit documentation, the employee does not have a legal expectation to receive it, or if the amount to be paid is at the voluntary discretion of the employer, i.e. a holiday bonus.

Another important aspect to consider when calculating the regular rate of pay is employees who perform multiple job functions within any workweek at different rates per hour. A weighted average rate must be calculated to determine the correct overtime pay. For example, if an employee works 30 hours at $8.50 per hour and 30 hours at $9.50 per hour in the same week, the regular rate of pay would be calculated as follows: 30 hours at $8.50/hr = $255.00 and 30 hours at $9.50/hr = $285.00, $255.00 plus $285.00 equals total compensation of $540.00. To find the weighted average rate, take the total compensation divided by the total number of hours worked in the week. $540.00 divided by 60 total hours equals $9.00, which is the regular rate of pay. In this example the overtime pay would be $40.00, which is 20 hours (60 total hours less 40) x $4.50 ($9.00 regular rate of pay x ½). The total gross amount of pay for the week would be $580.00 ($540.00 total compensation plus $40.00 overtime pay).

Although this may seem complicated, if broken down into steps it is much easier to calculate. Just think about regular rate of pay as a calculated amount, not just the normal hourly wage an employee earns. It is also important to think of the overtime pay rate as half of the regular rate of pay, instead of 1.5 times the normal pay rate.

Ketel Thorstenson, LLP is your full service bookkeeping resource. Call us with questions or if you need assistance with these calculations. We are here to assit. Call 605-342-5630 and request Jani Zweber, Jeanne Schneider or myself, Amanda Dennis.

September 10, 2015
| Amanda Dennis